Ma Bell goes to war: AT&T in the middle of the telecommunications free-for-all.

What's an adjective that describes 1996 for AT&T shareholders? Try "turbulent." Recent legislation has transformed the telecommunications industry into a free-for-all pitting cable, telephone and wireless companies against one another. On the heels of a well-publicized restructuring, AT&T began dismissing thousands of employees last January. Then, a new chairman was chosen to succeed the company's embattled chief, Robert Allen. Finally, the company's old telecommunications equipment arm, now called Lucent Technologies, completed its spin-off from Ma Bell, with NCR, the company's computer subsidiary, fast on its heels.

That kind of corporate rollercoaster ride sent AT&T shares sliding -- downward -- during much of the year, and the company saw almost 1 billion shares change hands. At press time, AT&T was selling for $39.63. If you had invested $1,000 in AT&T stock a year ago, your investment would now be worth $930 including dividends and shares of Lucent and NCR. (An Investor who owned 100 shares of AT&T prior to the spin-offs would now own those shares, as well as 32 shares of Lucent and 6.2 shares of NCR.)

So now what's up for the most widely held U.S. company? More of the same rough-and-tumble, says Christopher J. Williams, CEO of the New York securities firm, the Williams Capital Group. Yes, AT&T still has girth enough to be the preeminent player in the $60 billion long-distance market, and it has developed a new campaign designed at creating brand loyalty. Yes, the company is honing in on the local telephone market after a 13-year absence. And yes, AT&T is the biggest player of all in the cellular phone industry, which is growing at a 20% annual clip. The problem, however, is that being on all those competitive fronts may spread the company's resources thin, says Williams. Local phone companies, the so-called Baby Bells, including Ameritech, Bell Atlantic and SBC Corp., are by no means going to roll over and let AT&T snatch its customers. The cellular phone industry faces some growth questions ahead as die newest wireless service, called PCS, gets off the ground. Finally, long distance, which is AT&T's economic mainstay all these years, remains a highly contested business, with competitors like MCI, Sprint and Worldcom all eager to grab away market share where they can. Indeed, growth in this area. AT&T's primary business, was a weak 2% in 1996.

AT&T's current price is in the low $40s. Meanwhile, its P/E ratio of 12-13 is tempingly cheap, particularly when compared with almost 30 for the telecommunications industry, according to Zacks Investment Research. However, Wall Street has begun to question the long-revered company. One reason. Brokerage estimates now peg the broader communications service industry to grow at almost 19% annually over the next five years, leaving AT&T far behind.

Even with these challenges, Williams doesn't expect a shabby performance from AT&T. "I see the stock as a market-performer, one that will grow earnings at perhaps a shade less than the 10% expected for the S&P 500 in the next few years ahead," he says. His recommendation is to hold on to AT&T shares, although he cautions that now is not the time to put new money into the company.